CIR VS. CTA (3RD DIVISION) AND WINTELECOM, INC. GR NO.

203403, NOVEMBER 24,

2018
FACTS: WINTELECOM is a domestic corporation engaged in the selling and repairs of mobile
phones. On July 10, 2003, the BIR Enforcement Service sent WINTELECOM a letter advising it of the
Report which is the result of an investigation of its internal revenue tax liabilities for taxable years
2001 and 2000. WINTELECOM's counsel filed its protest to the investigation on July 31, 2003. On
Dec15, 2003, WINTELECOM received from the CIR a Pre-Assessment Notice for alleged deficiency
internal revenue taxes for the years 2000 and 2001, totaling P523.2M. WINTELECOM protested the
Pre-Assessment Notice on Dec 19, 2003
On March 10, 2004, a Final Assessment Notice for the deficiency internal revenue taxes for the years
2001 and 2000, with Details of Discrepancies, was received by WINTELECOM from the CIR , with a
grand total of P553.3M.
Before issuing the Assessment Notices, however, the BIR examiners conducted an examination of
WINTELECOM's records. By virtue of a subpoena duces tecum, copies of its invoices and other
documents were taken by the BIR examiners when they concluded an audit. WINTELECOM's
counsel, on April 1, 2004, requested the BIR to return the documents pertaining to taxable years
2000 and 2001 since they support petitioner's factual arguments in its protest on the Final
Assessment Notice. The BIR denied the request. Thus, WINTELECOM merely adopted its previous
contention in its July 31, 2003 letter when it filed its protest on the Final Assessment Notice.
There being no action by CIR on the protest, WINTELECOM filed a Petition for Review with this
Court (CTA) (CIR filed Motion for Extension of Time to File Answer FIVE times)
ISSUES:
1. WON the assessments from the BIR are null and void considering that WINTELECOM's
constitutional rights were violated when it was prevented from sufficiently contesting the
assessments after the CIR deliberately withheld from the documentary evidence it submitted during
investigation.
2. WON there is a factual and legal basis for the imposition of

a. deficiency income tax

b. value added tax.
3. WON the finding of deficiency fringe benefit tax on the purchase of petitioner's vehicle is proper.
4. WON the imposition of deficiency withholding and expanded withholding tax for the years 2000
and 2001 has factual and legal basis considering that petitioner has not been remiss in the filing and
remittance of payments thereon.

RULING:
1. NO. The failure to return the documents to WINTELECOM would not make the assessment
conducted by the BIR null and void. The presumption of regularity in the official function of
government officials is not defeated by a mere allegation that petitioner was deprived of
the opportunity to fully contest the subject assessments. WINTELECOM was given the chance to
present its position with the option to require the CIR to bring the alleged documentary evidence.
CIR could not be considered at fault for WINTELECOM's negligence in failing to retain copies of the
documentary evidence. In fact, WINTELECOM's witness admitted that it was her mistake that she
did not make an inventory of the documents that the BIR took from their office. Notwithstanding the
absence of these documents, WINTELECOM was able to rebut the findings of the BIR. Thus, it was
not deprived of its right as it was able to protest the same administratively and file the case before
the Court.

As for the remaining issues which deal with the merits of the assessments, the Court shall discuss
the same jointly.
2. A) NO. Deficiency income taxes canceled, 50% civil penalty moot. WINTELECOM asserts that no
factual and legal bases exist on the findings of the alleged deficiency income tax and VAT. This is
allegedly compounded by the fact that no evidence whatsoever was formally presented by the BIR
to support its findings, respondent having been declared in default.

CIR alleged that the assessment was purportedly based on third party information which revealed
undeclared purchases, sale of unaccounted prepaid cards, undeclared commission income and
undeclared service and repairs income for the years 2001 and 2000. As a result, CIR found
WINTELECOM subject to deficiency income tax. In justifying his assessment, CIR invokes his power
as provided in Section 6 (B) of the NIRC
While Section 6 (B) empowers the Commissioner to make assessments based on the best evidence
obtainable, he must also be able to present such evidence before the Court in the event that
litigation ensues. Best evidence obtainable which the Commissioner may use as his basis includes
those which cannot be admitted in a judicial proceeding where rules on evidence are strictly
observed. As held by the SC, “the best evidence obtainable may consist of hearsay evidence... which
may be inadmissible in a regular
proceeding in the regular courts. The general rule is that administrative agencies such as the BIR
are not bound by the technical rules of evidence. However, the best evidence obtainable... does not
include mere photocopies of records/documents. The CIR in making a preliminary and final tax
deficiency assessment against a taxpayer, cannot anchor the said assessment on mere machine
copies of records/documents... [as] such copies are mere scraps of paper and are of no probative
value as basis for any deficiency income or business taxes against a taxpayer.” and that the
“assessment must be based on actual facts.”
In this case, CIR respondent failed to present any evidence to prove the alleged third party
information. In fact, there were also no evidence to point out what were the items purchased, who
were these suppliers and how much was actually purchased. Considering the enormous power given
to CIR and the leniency in the kinds of evidence he may accept as basis for his assessments, he had
no excuse in failing to present to this Court the third party information on which the BIR examiners
based the assessments.
B) YES, by its own admission. In 2A, undeclared sales traceable to undeclared purchases, sale of
unaccounted prepaid cards, undeclared commission income, and undeclared service and repairs
income were cancelled for respondent's failure to present the third party information on which the
assessment was based. Thus, WINTELECOM cannot be assessed for deficiency VAT on the alleged
undeclared sales. However, WINTELECOM admitted in its July 31, 2003 protest letter that it is liable
for deficiency VAT for the years 2001 and 2000 , which arose from errors it made in the
bookkeeping of its sales transactions for such years.
3. YES. The audit disclosed that WINTELECOM purchased a Ford Expedition vehicle in the name of
Cherry Uyco-Ong, an officer. According to WINTELECOM, the Ford Expedition was purchased for the
use and benefit of the company and not for the use or benefit of a particular individual. This is not
convincing. The fringe benefits tax is a final tax
on the employee, other than a rank-and-file employee, that shall be withheld and paid by the
employer on a calendar quarterly basis as provided under Sections 57 (A) 33 and 58 (A) 34 of the
NIRC. The term "fringe benefit" means any good, service, or other benefit furnished or granted by
an employer in cash of in kind, in addition to basic salaries, to an individual employee.

In this case, petitioner failed to show that the Ford Expedition, a luxury vehicle, is necessary in its
trade or business or that the use thereof is for its convenience or advantage. This leads to the
conclusion that the Ford Expedition purchased in the name of Ms. Cherry Uyco-Ong was for her
personal use only.
4. YES

ON WITHHOLDING TAXES: The withholding taxes on compensation for the months of February
2001 and December 2001 should have been remitted on March 12, 2001 27 and January 25, 2002,
respectively. A scrutiny of petitioner's Monthly Remittance Returns of Income Taxes Withheld on
Compensation for the months of February 2001 and December 2001 28 shows that petitioner
belatedly remitted the said withholding taxes on March 14, 2001 and January 28, 2002, respectively.
Hence, petitioner is liable for surcharges and interests for its belated remittances on March 14, 2001
and January 28, 2002.
The imposition of surcharge is mandatory. This is justified because the intention of the law is
precisely to discourage delay in the payment of taxes due to the State. Even the alleged good faith
of the taxpayer in failing to pay the tax upon advice of counsel is not sufficient justification for
seeking exemption from the payment of surcharges. ‘Surcharge' is an overcharge or exaction
imposed by law as an addition to the main tax required to be paid. It is not really a penalty as used
in criminal law but a civil administrative sanction provided primarily as a safeguard for the protection
of the State revenue and to reimburse the government for the expenses in investigating and the loss
resulting from the taxpayer's fraud
The imposition of compromise penalty was be sustained. The Court has no jurisdiction to compel a
taxpayer to pay the compromise
penalty because by its very nature, it implies a mutual agreement between the parties in respect to
the thing or subject matter which is so compromised, and the choice of paying it or not paying it
distinctly belongs to the taxpayer.
ON EXPANDED WITHHOLDING TAXES: An audit made by CIR disclosed that there were unremitted expanded
withholding tax for year 2001. Also, an analysis of expenses subject to expanded withholding tax per financial
statements as against the monthly returns showed that there were income payments such as commission,
purchase of supplies (printing), professional fee, brokerage and advertising which were not subjected to the
required withholding tax rates.